Days after Finance Minister Nirmala Sitharaman announced an increase of insurance cover on bank deposits in her Budget Speech, the Reserve Bank of India (RBI) on Tuesday increased the amount from Rs 1 lakh to Rs 5 lakh, as fixed by the government. The new insurance cover came into effect from Tuesday onwards.

Deposit insurance was static at Rs 1 lakh since 1993. The cover is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI.

The increase, has been done with a view to providing a greater measure of protection to depositors, said RBI.

The move will help in strengthening customers’ confidence in the Indian banking system, especially after the sector witnessed Punjab and Maharashtra Cooperative Bank (PMC Bank) scam, which affected thousands of its customers.

As the insurance cover stands increased, the banks will pay a premium of 12 paise against 10 paise per Rs 100 deposit. The deposit insurance scheme covers all banks operating in India, including the private sector, cooperative and even branches of foreign banks.

There are some exemptions such as deposits of foreign governments, deposits of central and state governments, and inter-bank deposits.

(With input from agencies)